Financial Sense in Election 2012

As 2012 is an election year we should not pretend that the year’s political debates will not affect the world of investing, buying and selling. Of special momentary interest is Mitt Romney’s choice for running mate, Wisconsin Congressman Paul Ryan. President Obama has called Ryan the “ideological leader” of the congressional Republicans. Readers might want to know what this attribution signifies.

It is worthwhile to recall an episode which occurred when Ryan directly confronted President Obama about the financial impracticality of Obama’s health care bill during the President’s 2010 Health Care Summit (see “Hiding Spending Doesn’t Reduce Spending”). According to Ryan, “The problem is [that] health inflation is driving us off a fiscal cliff.” This is because, in Ryan’s words, Medicaid “is suffocating states’ budgets. It’s adding trillions in obligations that we have no means to pay for.”

Ryan quoted President Obama’s words to Congress: “I will not sign a [health care] plan that will add one dime to our deficits either now or in the future.” Nevertheless, Obama signed a bill that Ryan says is bound to break the bank. About Obama’s health care bill Ryan said, “This bill does not control costs. This bill does not reduce deficits. Instead, this bill adds a new health care entitlement at a time when we have no idea how to pay for the entitlements we already have.”

Ryan went on to explain how expensive Obama’s bill would be, despite claims to the contrary. The bill, he said, “is full of gimmicks, smoke and mirrors.” According to Ryan, the true ten-year cost of ObamaCare would be $2.3 trillion. Costs are hidden in many ways, said Ryan. One trick is counting $52 billion in higher social security tax revenues as offsets. Yet these revenues are supposed to be reserved for social security. As Ryan noted, “The Senate Budget Committee chairman said that this was a Ponzi scheme that would make Bernie Madoff proud.”

But there’s more, said Ryan. ObamaCare essentially “treats Medicare like a piggy bank. It raids a half a trillion dollars out of Medicare – not to shore up Medicare’s solvency, but to spend on this new government program….” Ryan quoted the chief actuary of Medicare as saying that 20 percent of Medicare’s providers “will either go out of business or will have to stop seeing Medicare beneficiaries.”

There are massive expenses when the government attempts to “take over” an activity that should belong in private hands. First and foremost, the market is far less wasteful than government. This truth is axiomatic, though many never learned it. Whereas the individual demands a true accounting, the government often hides or ignores the true costs of its programs. According to Ryan, “Ignoring these costs does not remove them from the backs of taxpayers. Hiding spending does not reduce spending.”

In fact, as Ryan stated, our fiscal situation is “unsustainable.” As a society we increasingly deceive ourselves when it comes to money. We repeatedly call upon government to run enormous social programs and to collect a staggering amount in taxes. Despite all the taxes collected, the government is nearly $16 trillion in debt. “There really is a difference between us,” Ryan told Obama. “We don’t think the government should be in control of all this. We think people should be in control of this.” (That is to say, men and women should do for themselves. They should look to family and church for answers – not the government.)

“We are all representatives of the American people,” Congressman Ryan went on to say. “We all do townhall meetings. We all talk to our constituents. And I’ve got to tell you that the American people are engaged. And if you think they want a government takeover of healthcare I would respectfully submit that you’re not listening to them.”

President Obama replied to Ryan by saying there were “strong disagreements about the numbers.” Rather than getting bogged down discussing numbers, Obama wanted to know if Medicare “worked.” Yet there is no way to answer this question except by numbers. Quite naturally, the question of affordability is a numbers question – and so is deficit spending. Since Mitt Romney picked Ryan as his running mate, we’re liable to hear a more nuanced debate about numbers during the campaign; and that’s a good thing.